U.S. Use of Gasoline is Down, Yet Pump Prices are Up as Speculators Move In

Driven in large part by market speculators, the price of gasoline has increased significantly recently—at a time when demand at the pump is down.

In fact, demand for oil and gasoline is down so much that the U.S. has become a net exporter of the fossil fuel.

Traders on the New York Mercantile Exchange have been buying up oil futures, driving the price per barrel to $106. The brewing crisis with Iran in the Persian Gulf has been cited as one reason for the increase in trading, but speculation would appear to be a bigger factor.

“Speculation is now part of the DNA of oil prices. You cannot separate the two anymore. There is no demarcation,” Fadel Gheit, an analyst at Oppenheimer & Co., told McClatchy Newspapers. “I still remain convinced oil prices are inflated.”

According to Kevin Hall of McClatchy, historically speculators have accounted for 30% of oil trading, while actual producers and users accounted for 70%. Now however, the oil market is dominated by speculators who are looking for a profit by buying and selling any commodity they think works. The latest weekly report issued by the Commodity Futures Trading Commission showed that producers and merchants accounted for only 36% of trades, while speculators made up 64%.

The average price for a gallon of gasoline this week stood at $3.57, compared with $3.38 a month ago and $3.17 in 2011.